SHARKNINJA, INC. 
Undercover story
On paper, SharkNinja has all the hallmarks of an American company that has been firmly established in Massachusetts since its inception. But it's not all as it seems. The story goes back to the mid-90s in Montreal, where Mark Rosenzweig, whose family had run Euro-Pro Operating LLC for generations before him, took off by founding his company in 1994 following the creation of a few upright cleaners and vacuums. Then, in 2003, founder Mark Rosenzweig relocated from Montreal to Needham, Massachusetts. He then founded the Shark brand in 2007 with the launch of zero-loss vacuum technology. Shortly afterwards, Mark Barrocas joined SharkNinja, leading to the launch of the Ninja brand in 2009.
Source : MarketScreener
A few years later (in 2017), CDH Private Equity acquired a stake in SharkNinja, which it then structured into a Hong Kong investment holding company. Beijing gradually influenced the company, as the current Chairman, Xu Ning Wang, originally from Beijing where he studied at Jiaotong University, is also Chinese. The latter is also the main investor, with a majority stake (54.35%) and voting rights. What's more, the company's main bank is the Bank of China, and the majority of its production is carried out in China.
Digging a little deeper, we discover that Xu Ning Wang is also Managing Director of JS Global Lifestyle, the famous Hong Kong investment holding company, which is therefore the parent company of SharkNinja. Reading the F1 IPO document, we see that SharkNinja Global SPV, below JS Global Lifestyle, was incorporated in the Cayman Islands on June 27, 2017. Incidentally, SharkNinja's ISIN, KYG8068L1086, had tipped us off.
Although headquartered in Needham, Massachusetts, SharkNinja turns out to be an undercover company with strong Chinese overtones, whose regulations permitted by Cayman Islands laws are lighter than elsewhere. In short, they like to hide in the shadows. That's always an interesting point to keep in mind for later.
The company (half-American, half-Canadian, half-Hong Kong, half-Cayman) offers a diverse range of household products covering around 31 segments, from cleaning appliances to kitchen appliances, beauty products and home environment solutions.
Source: SharkNinja
Its flagship brands are Shark and Ninja. The Shark brand is best known for its handheld and robotic vacuum cleaners, as well as other floor care products such as steam brooms and carpet cleaners. The Ninja brand, meanwhile, focuses on kitchen appliances, including fryers, multi-cookers, grills, ovens, mixers and food processors.
Source : SharkNinja
SharkNinja occupies a leading position in the household appliance market, with a strong presence in the United States (46%) and the United Kingdom (20%). Its main competitors include SEB, Helen of Troy, De'Longhi, Dyson, iRobot, Breville Group and Haier Smart Home.
By segment, cleaning appliances represent 42.77% of sales, cooking and beverage appliances 33.89%, food preparation appliances 15.37%, and other products 7.97%. In terms of geographical breakdown, SharkNinja generates 65.4% of its revenues in the USA, 19.7% in the UK, 5.55% in North America (excluding the USA), 5.52% in Europe, and 3.83% in the rest of the world.
Source: SharkNinja
SharkNinja has demonstrated solid growth over the years, with revenues reaching 4.25 billion USD in 2023, up 20% annually over the past 15 years. The company has capitalized on innovation, range expansion, entry into new segments and geographic expansion to boost sales.
News and outlook
In the first half of 2024, the company recorded a 28.2% increase in net sales and a 34.8% increase in adjusted net income compared with the previous year. Adjusted net margin increased by 0.5 percentage points to 10.7%, thanks to supply chain optimization and improved economies of scale. In addition, it recently announced innovative product launches, such as the FlexBreeze series of fans and the SpeedStyle series of hair dryers. These new products should contribute to the company's future growth.
For 2024, SharkNinja forecasts sales growth of 23.7% (20.4% for the Shark brand and 27.1% for the Ninja brand), reaching $5.26 billion. Forecasts for 2025 and 2026 are equally optimistic, with expectations of $6.01 billion and $6.83 billion respectively. This growth is underpinned by expansion into new product categories and geographic markets. Earnings should increase even faster. Indeed, the company anticipates an improvement in margins, with gross margin forecast at 47.5% and adjusted net margin at 11.3%.
Solid financial statements
SharkNinja boasts solid profitability ratios. Return on equity (ROE) and return on capital employed (ROCE) are both up, reflecting efficient management of the company's resources. Gross, EBITDA, EBIT and net profit margins are also improving, supported by cost optimization and increased sales.
The company has a solid cash position and adequate capacity to repay its debts. Its net debt stands at USD 709 million in 2023, which is manageable given the company's free cash flow generation.
SharkNinja generates positive free cash flow, enabling it to finance its operations and investments without excessive recourse to debt. The company has also demonstrated its ability to repay its debts through prudent cash management.
Management team
Management is experienced and competent. CEO Mark Barrocas has extensive experience in the consumer goods industry. He helped found the Ninj brand back in 2009. He is also a 1% shareholder, representing a stake of around $144 million at the current price. This ensures a certain alignment with shareholder interests. The management team also includes experts in technology, operations, marketing and finance, ensuring effective management and a clear strategic vision for the company's future.
Source : MarketScreener
Valuation
At the current price, SharkNinja shares are valued at USD 103.47. This valuation is justified by the company's solid financial performance and growth prospects. The 2024 price/earnings ratio (P/E) is estimated at 31.7x, which reflects a premium to the global average of 14x, but is at least partly justified by the company's improved earnings visibility and rapid growth. Other multiples for 2024 estimates include P/S (capitalization/sales) of 2.77x, VE/EBITDA (enterprise value/EBITDA) of 13.6x and VE/FCF (enterprise value/free cash flow) of 26.6x.
Compared with its competitors, SharkNinja has higher valuation multiples, but this is offset by faster growth and better profitability. The company stands out for its continuous innovation and ability to penetrate new markets, which gives it an edge.
However, given the holding structure, the Hong Kong connections and the Cayman Islands registration, a slight discount to current multiples is likely. We are therefore not buying the company at the current price, but rather waiting to see what happens.
Main risks
In addition to valuation, we can cite the following:
- Fluctuations in raw material prices: Fluctuations in the prices of raw materials such as copper, plastic and stainless steel can affect SharkNinja's operating costs. Although the company has pricing power, there may be a time lag before cost increases are passed on to customers.
- Customs duties: Increased customs duties on imports into the United States represent a risk for SharkNinja, as part of its supply chain is located in China. The additional costs associated with customs duties could affect the company's profitability.
- Competition: The small appliances sector is highly competitive, with relatively low barriers to entry. Increased competition could lead to a price war, affecting SharkNinja's revenue and earnings growth. In particular, Shark Ninja claims to have the leading share of the robotic vacuum cleaner market. The downturns in iRobot, Bed Bath & Beyond and, more recently, Tupperware show that competition and lengthy difficulties can nonetheless take their toll on a company. The company is currently involved in a lawsuit with iRobot over a robot vacuum cleaner. And don't confuse a brand with a company. A brand's aura in the minds of consumers is not always congruent with its operational success. So we need to be on the lookout for operational failures, as they can be stealthy.
- Currency risks: Although SharkNinja uses the US dollar as its reference currency, its European operations are settled in euros and pounds sterling. Fluctuations in exchange rates may present a risk for the company's financial results.
- Economic slowdown: An economic slowdown in North America or Europe could reduce SharkNinja's sales, as consumers may moderate their purchases of discretionary goods.
Conclusion
With a breathtaking performance, SharkNinja proves they know how to wield the blade! The company benefits from strong growth, solid profitability and an experienced management team. Recent financial results and optimistic forecasts for the future reinforce the investment thesis. Despite certain risks as mentioned and the company's structure, SharkNinja is well positioned to continue to grow and generate value for its shareholders. But is it worth the risk?
